The Dow Jones defied a horrendous set of U.S. economic data as the stock market embarked on a spectacular “Turnaround Tuesday.”
Hopes of an imminent $2 trillion fiscal stimulus package distracted Wall Street from the worst services PMI reading in history, but rock-bottom sentiment was likely the trigger for today’s short squeeze.
It was an uncharacteristically healthy day among the major U.S. stock market indices:
In the commodity sector, oil continued to struggle despite the enormous moves in equities. Crude edged 3.17% higher but continues to trade below $25 per barrel.
Gold prices continue to revel in the global turmoil. Fiscal stimulus packages and drastic monetary easing around the world have prompted rampant demand for XAU/USD.
But as bright as the day was for Dow Jones bulls, it was historically dark for the U.S. economy, which recorded its worst services PMI reading ever.
This all but assures a brutal GDP contraction, and it highlights the weakness in the economy’s critical support – the U.S. consumer.
Following the president’s phone call with top traders and industry executives, it’s clear the White House believes the stock market craves a target date for when the economy will begin to get back to normal.
But Trump’s plan defies the COVID-19 forecast coming from New York officials. His timeline to resume economic activity is uncomfortably similar to Governor Cuomo’s prediction for when the virus will peak.
The impact on the Dow from Trump’s strategy could be positive if COVID-19 is retreating, but it’s unlikely the economy would burst back to life if the disease is still in full swing.
Mixed coronavirus news out of Europe saw Italy reverse its trend for falling deaths, while Germany is inspiring hope with its extremely low fatality rate of just 0.4%, compared to 9.5% at COVID-19’s epicenter in Italy.
The broader S&P 500 may provide some insight into the outlook for the 30-member Dow Jones.
Peter Garnry from Saxo Bank analyzed the S&P 500’s technical outlook. He said it’s entirely possible that we’ll see the S&P 500 surge nearly 70% in the very near future.
The distribution of 21-day future returns is positively skewed with a median around zero but with massive variance. The biggest drop from such a distance to the 200MA is another 25% which would take the S&P 500 to 1,678 by April.
In the other extreme we find the maximum gain which has been 68% which would take the S&P 500 to 3,758 by April. The numbers fit very well with the high VIX Index that we are still observing thus moves are to be expected over the coming weeks.
It would be tremendous news for the Dow if this came to fruition, but Garnry warns that this view could be clouded since the current situation is historically unprecedented.
A vast relief rally engulfed the Dow 30 on Tuesday, and the stock market’s biggest names roared back into life.
Boeing (NYSE: BA) posted a massive 21% gain as some of the index’s most depressed companies surged. BA stock likely got its most significant push from the fact that devastated airline stocks were up as much as 30%.
But the gains slipped after Boeing’s CEO rejected the idea that the government would take a stake in the troubled aerospace giant:
Disney (NYSE: DIS) was also posting monster gains, moving 14% higher as it caught a strong bid.
The Dow’s most heavily weighted stock, Apple (NASDAQ: AAPL), was less explosive. It still managed to rally 10%.
Despite suppressed oil prices, Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) joined the party. They both posted double-digit gains, with CVX leaping 23%.
Last modified: March 24, 2020 8:24 PM UTC